Formerly known as Kraft Foods, Mondelez is the world’s largest snack company, operating in more than 80 countries with seven brands generating over $1 billion in annual sales, including Oreo, Cadbury and Trident gum. But the company has recently been the victim of shifting consumer trends. North American food shoppers are increasingly eschewing middle-aisle packaged foods in favor of the healthier, fresher options at the grocery store’s perimeter. What’s more, brand-name foods face competition from lower-cost private-label items. As a result, companies that make packaged foods have felt the burn of late; their shares have fallen 3% over the past 12 months, on average, compared with an 18% gain in the S&P 500.
That Mondelez has fallen along with them, however, represents a market overreaction, says Parnassus’s Klaber. For one thing, he says, despite rockiness on the home front, Mondelez derives only 24% of revenue from the U.S., with the rest coming from abroad, including a 40% draw from faster-growing emerging markets. Furthermore, Mondelez’s stable of excellent brands, especially candy and chewing gum, which people tend to buy brand-name, faces less pressure from private labels than competitors’ offerings.
The stock currently trades at 18 times estimated year-ahead earnings—in line with the broad stock market. That represents a sizable discount to a P/E that’s been running at a 30% premium to the market, on average, over the past five years. The shares yield 1.9%.
SEE ALSO: Quiz: Test Your Bull Market IQ
Source: Kiplinger
5 Stocks the Bull Market Left Behind
